13F Season: Three Things To Look For

In the fourth quarter of 2011, I decided that I needed to analyze the 13F filings of major investors who I thought were bright. The first stage was looking at track records, and then finding the 13F filings. Some investment management companies make them difficult to find. And, prior to three quarters ago, formatting issues allowed managers to make it a lot more difficult to compare 13F data across managers.

But now data must be submitted in a uniform format, using extensible markup language [XML]. That can be fed into Excel with little effort, and much of the prior data scrubbing goes away. That data scrubbing took an extra day at least.

That said, the central challenge for someone that does not have a Bloomberg terminal is converting the CUSIP numbers [Committee on Uniform Securities Identification Procedures numbers] into ticker symbols. Those numbers are owned by the American Banking Association, and they charge a pretty penny to use them. I asked the folks at AAII [American Association of Individual Investors] to include a CUSIP field in their deluxe stock screening package, and they said something like, “Are you kidding? Do you know what the American Bankers Association charges for it?!”

When I started, I asked my bright, then 12-year old daughter to build up our own CUSIP to Ticker database. She worked for many hours, producing a significant database for which I paid her well. Since that time, I have maintained that database.

After I download via XML all of the manager reports that I want to follow, I sort out all of the CUSIPs I have never seen before, and find their tickers.

What used to take a week now takes a little more than a day in total, start to finish.

One thing that I do differently than some others in analyzing 13F filings is that I am interested in what percentage of the market capitalization the positions represent, and how large the net increase in positions is relative to market capitalization.

After that I look at three things:

What are the largest holdings as a group as a whole as a percentage of market cap,

What are the largest net increases in holdings as a group as a whole as a percentage of market cap, and

What ideas are new, that no one invested in last quarter, and two or more invested in this quarter?

Now I am not saying that I have the formula right, but this feels right to me. I invite readers to suggest their own ways of screening through 13Fs to determine the most worthy investment ideas.

But before I leave for the evening, another boon: here are the tickers generated by my 13F methods this quarter:

After the last few articles, you know almost all of the companies that I am considering investing in versus my current portfolio. Have look as you like, and maybe a few of them are good investment ideas.

Author: David MerkelDavid J. Merkel, CFA, FSA — 2010-present, I am working on setting up my own equity asset management shop, tentatively called Aleph Investments. It is possible that I might do a joint venture with someone else if we can do more together than separately.
From 2008-2010, I was the Chief Economist and Director of Research of Finacorp Securities. I did a many things for Finacorp, mainly research and analysis on a wide variety of fixed income and equity securities, and trading strategies.
Until 2007, I was a senior investment analyst at Hovde Capital, responsible for analysis and valuation of investment opportunities for the FIP funds, particularly of companies in the insurance industry. I also managed the internal profit sharing and charitable endowment monies of the firm.
From 2003-2007, I was a leading commentator at the investment website RealMoney.com. Back in 2003, after several years of correspondence, James Cramer invited me to write for the site, and I wrote for RealMoney on equity and bond portfolio management, macroeconomics, derivatives, quantitative strategies, insurance issues, corporate governance, etc. My specialty is looking at the interlinkages in the markets in order to understand individual markets better. I no longer contribute to RealMoney; I scaled it back because my work duties have gotten larger, and I began this blog to develop a distinct voice with a wider distribution. After three-plus year of operation, I believe I have achieved that.
Prior to joining Hovde in 2003, I managed corporate bonds for Dwight Asset Management. In 1998, I joined the Mount Washington Investment Group as the Mortgage Bond and Asset Liability manager after working with Provident Mutual, AIG and Pacific Standard Life.
My background as a life actuary has given me a different perspective on investing. How do you earn money without taking undue risk? How do you convey ideas about investing while showing a proper level of uncertainty on the likelihood of success? How do the various markets fit together, telling us us a broader story than any single piece? These are the themes that I will deal with in this blog.
I hold bachelor’s and master’s degrees from Johns Hopkins University. In my spare time, I take care of our eight children with my wonderful wife Ruth.